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CCE Expects Weak Growth in 2014 - Analyst Blog

While
Coca-Cola Enterprises, Inc.
's (
CCE
) third-quarter 2013 results improved from a weaker first half,
management remains cautious for the next quarter and year due to
continued operating and marketplace challenges.

Recently, the western European bottler of
The Coca-Cola Company
(
KO
) provided a business update where it maintained the fiscal 2013
outlook. However, management's expectations for fiscal 2014 fell
short of its long-term targets as the industry conditions
continue to be tough.

2014 Outlook below Long-Term Guidance

In 2014, adjusted earnings are expected to grow approximately
10% in constant currency terms. In addition, currency is expected
to benefit 2014 earnings per share in the range of 3%-4%.

While adjusted constant currency net sales are expected to
grow in the low single-digit range, operating income is expected
to grow in the mid single-digit range. Management's 2014 revenue
and operating income outlooks are below the long-term targets of
4% to 6% and 6% to 8%, respectively. Though the earnings per
share guidance of approximately 10% growth is above the long-term
target of high single-digit range growth, it will be mostly
driven by share buybacks.

The company has been facing many operating and marketplace
challenges. Changing consumer preferences, increasing health
consciousness, rising obesity concerns and growing regulatory
concerns are exerting significant pressure on the carbonated soft
drinks category in North America. Moreover, the company is
geographically focused in Western Europe and is thus exposed to
the economic uncertainties of this region, including the debt
burdens of some of these countries and the challenging consumer
spending environment.

Management believes that these challenges will continue to
persist and create uncertainty for growth in 2014. Accordingly,
management's outlook for 2014 is below its long-term targets.

Cost of goods sold is expected to increase in a range of 2% to
2.5%. Moreover, interest and taxes are expected to be higher in
2014 versus 2013.

In order to drive growth in 2014, management will once again
resort to aggressive marketing initiatives and packaging
innovation. Management will build on the success of its "Share a
Coke" campaign; capitalize on the 2014 football World Cup
championship; and increase the focus on Coke Zero, its low
calorie version of Coke and energy drinks. In addition, the
company will introduce its popular 1.75 liter bottle in Great
Britain as the new primary large PET package.

Coca-Cola Enterprises expects free cash flow for full-year
2014 to be in the range of $600 million-$650 million. Capital
expenditures are expected to be approximately $350 million. The
company expects the weighted average cost of debt to be around
3%. The effective tax rate is expected in a range of 26% to
28%.

Fiscal 2013 Outlook Maintained

In fiscal 2013, the company continues to expect its adjusted
earnings per share to remain in the upper half of the previously
guided range $2.45 to $2.50. However, the guidance now includes a
2.0% positive impact from currency, higher than prior
expectations of less than 1.5%.

The company continues to expect adjusted net sales (including
currency impact) to grow in the low single-digit range in fiscal
2013.

Adjusted operating income (including currency impact) is
expected to increase in the low single-digit range. We would like
to remind investors that during the third-quarter conference
call, operating income guidance was lowered from prior
expectations of increase in the low-to-mid single-digits range.
Moreover, the operating income guidance includes the expected
currency benefits which were previously excluded from the
outlook.

New Share Repurchase Program

The company expects to repurchase shares worth at least $1
billion (under its $1.5 billion plan) by the end of 2013.
Year-to-date, through the third quarter, the company has
repurchased approximately $900 million worth of its stock. In
addition, the board of directors of Coca-Cola Enterprises
authorized a new $1 billion share buyback program. In 2014, the
company expects to buyback $800 million worth of stock.

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